Japan’s auto industry is on the brink of crisis as looming U.S. tariff threats cast a shadow over its economic recovery. A manufacturer of suspension units, like many others in Japan, is grappling with the unpredictable landscape of U.S. trade policy, having previously shifted production from China to Japan to dodge hefty tariffs. With China’s tariffs now eased and new threats against Japan emerging, companies face a precarious decision: stay or move back to China.

The uncertainty surrounding tariffs is not just a corporate headache; it poses a significant risk to Japan’s economy, where the auto sector employs over 8% of the workforce and contributes 10% of the nation’s GDP. As Japan appeared to be on the verge of an economic revival—marked by rising wages and increased consumer spending—the specter of a trade war looms larger than ever.

Recent discussions between Japanese Prime Minister Shigerro Ishiba and U.S. President Donald Trump at the G7 summit failed to yield any resolution, heightening fears that diplomatic relations could deteriorate into a tit-for-tat trade conflict. Experts warn that retaliatory measures by Japan could exacerbate economic woes, urging the government to exercise caution.

As the world’s fourth-largest economy, Japan holds significant leverage, being the largest holder of U.S. debt. This puts the nation in a strong position to negotiate, yet the stakes are high. The outcome of this trade standoff could reshape not only Japan’s economic landscape but also its longstanding relationship with the United States.

As tensions rise and uncertainty prevails, the clock is ticking for Japan’s auto industry. The potential for recession looms large, and the stakes for both nations could not be higher. Stay tuned as this developing story unfolds.